CHAPTER 3: OVERVIEW OF POLITICAL EVENTS AND NATIONAL BUDGET ANNOUNCEMENTS IN MALAYSIA The focus of this research study is on the impact of political events and national budget announcement on the local stock market. For the purpose of this project, a set of 38 discrete political events with different dates of occurrence which cover a time period of three decades starting from 1981 have been selected. Though a longer perspective is useful in providing a broader view of the picture, this study will not cover events prior to 1981, except for occasional reference and summary during the analysis. The scope of the selected political news is limited to government-oriented announcements which can be broadly categorized into six major types: Dissolutions of the Parliament, General Elections, party elections, the changing of administration leadership, the reshuffle of cabinet and extraordinary political events. This study, however, does not include news from the opposition party. The second part of the research will be dealing with the national budget announcements which broadly include some of the major information such as the country's GDP, balance of payment, fiscal policy, and tax policy. Fifteen years of national budget from 1998 to 2011 have been collected for testing and analysis on their impact on the Malaysian market reactions. 38 3.1 Political events from 1981—1990 The first event of this study dates back to 15 May 1981 when Hussein Onn, the then Prime Minister of Malaysia, first announced his intention to resign due to health problem (Mean, 1991) and would pass the Premiership to Mahathir Mohamad. Then on 26 June 1981, the 36th UMNO Election witnessed the hard-fought contest between Tengku Razaleigh Hamzah, a wealthy businessman and Musa Hitam for the deputy presidency of UMNO, where Musa Hitam defeated Tengku Razaleigh. It was widely believed that the new administration led by the 2-Ms would seek mandate from the people before the constitutional election deadline arrived (Mauzy, 1982). As expected, the 6th National Election was set on 22 April 1982 and it was the first national election after Mahathir took over the leadership of the country. As in every other elections before it, the National Front (Barisan National) went into the election with powerful strength and won the election overwhelmingly with 103 seats as compare to 94 seats in 1978 (Mauzy, 1982). The Malaysian Chinese Association (MCA), the Chinese representative party in the tripartite ruling coalition, plunged into a crisis of “phantom membership” on 19 March 1984 when the then Acting President Neo Yee Pan dismissed Tan Koon Suan as Chairman of the Wilayah Persekutuan Liaison Committee and Lee Kim Sai as Selangor Liaison Committee Chairman and MCA Youth chief. The Chairman of the Disciplinary Board, Mak Hon Kam, further expelled 14 top party leaders, including Dr. Ling Liong Sik who was then a Central Committee member. About two months after the crisis, the 37th UMNO Election took place on 25th May 1984 and again, Musa Hitam defeated 39 Tengku Razaleigh Hamzah for the second time for the Deputy Prime Minister Post. Though defeated, Tengku Razaleigh was retained by Mahathir as the Minister of Trade and Industry during the major cabinet reshuffle on 14 July 1984 and the appointment of Daim Zainuddin, another wealthy business figure in Malaysia, as the finance minister was a big surprise. In 26 February 1986, Musa Hitam resigned from his Deputy Prime Minister Post and was succeeded by Ghafar Baba on 7 May 1986. Soon in August 1986, Malaysia had its 7th General Election and with no big surprise, Barisan National (BN) won a victory of 148 out of 177 seats (Nohlen et al., 2001). Then, in 1987 comes the controversial 39th UMNO Election when this time Tengku Razaleigh and Musa Hitam teamed up to challenge Mahathir’s leadership as they were dissatisfied with autocracy in his leadership. Though both Tengku Razaleigh and Musa Hitam were predicted to win the Presidential and Deputy Presidential Posts, both lost to Mahathir and Ghafar Baba by a narrow margin of 43 and 40 votes respectively (Yusoff, 2001). With great dissatisfaction on the results, Tengku Razaleigh later left UMNO and formed Semangat 46 party to challenged UMNO. In October the same year, the “Operation Lalang” was carried out by the Malaysian Police to crack down on opposition leaders and social activists. 106 people were arrested under the Internal Security Act (ISA) and the licenses of two dailies, The Star and the Sin Chew Jit Poh and two weeklies, The Sunday Star and Watan were revoked. This event shook the stock market, causing the KLCI plunged by about 12% the next day. The National Elections in 1990 witnessed the difficult infighting within the Malay community, whether this time the ruling coalition, Barisan National, was 40 challenged by Tengku Razaleigh Hamzah’s party S46, as well as MCA internal contestation caused by perennial divisive leadership disputes between Lee Kim Sai and Lim Liong Sik (Mehden, 1991). Though bitterly fought, the Front managed to win 127 seats out of 180 at national level and secured two-thirds majority in Parliament (Mehden, 1991). 3.2 Political events in the 1990s Another round of UMNO internal division happened in the late 1993 when Anwar Ibrahim brought his Vision Team to stand openly against the incumbent deputy president Ghafar Baba, defeated and replaced him on the party’s general assembly (Chin, 1996). The ninth general election was held in April 1995. Despite the prediction that Barisan national would face stiff competition from three states, the ruling coalition won a landslide victory where BN won 162 out of 190 parliament seats. The results were by far the best under the Mahathir’s leadership since he stepped up as the PM of Malaysia in 1981 (Chin, 1996). On 2 September 1998, one day after Mahathir announced the pegging of Malaysian currency to US dollar at 3.8 ringgit to a dollar, Anwar Ibrahim, the incumbent deputy Prime Minister, was sacked to the Malaysia’s surprise. Interestingly, the market bounced and stated a 12.14% increase in return, which showed a completely different reaction when return slumped at 13.28% the day before when Mahathir imposed the strict 41 currency control.1 This event had created tremendous impact to the stock market and this was reflected in the increasing stock return of up to 22.46% three days after. Under the political unrest since the removal of Anwar Ibrahim and the residual frustration of BN managing the 1997 financial crisis, the 10th National Election then took place on November 29, 1999. The election results were, however, not much different from the past elections where BN continued to rule and the opposition party continues to oppose. Nonetheless, UMNO lost a substantial proportion of votes to its rival and some of the issues, including the fairness of the electoral procedure and the reliability of the outcomes, had been questioned by the opposition parties (Weiss, 2000). 3.3 Political events in the new millennium Oct 31, 2003 was a new milestone of Malaysian political history as it witnessed the passing of Premiership baton from Mahathir to Abdullah Ahmad Badawi, the fifth Prime Minister of Malaysia. It is widely believed that though Abdullah has inherited positive achievements such as a good infrastructure, a growing middle class and stable ethnic relationship from Mahathir, he needs to further deal with the negative residual impact from the Mahathir era which includes budget deficits, cronyism, corruption and soured relationship with several countries (Ooi, 2005). General impression on Abdullah’s administration was quite well as this was justified during the 11th National Election conducted on March 21st, 2004, where the ruling coalition secured 198 out of 219 seats in Parliament and increased its popularity of 1 Refer FTSE Bursa Malaysia Kuala Lumpur Composite Index 42 support from 56.5% in 1999 to 63.8% in 2004 (Liow, 2005). As Liow (2005) points out, this landslide victory was mainly attributable to Abdullah’s personality and policies, as well as many shortcomings in opposition strategies. Since 1969, the Malaysian politics was dominated by the ruling coalition after winning overwhelmingly in almost each national election (Lim & Har, 2008). Things seemed to start changing when the 12th National Election took place on March 8, 2008. The opposition coalition of PKR, DAP and PAS succeeded in winning a total of 82 seats in Parliament and 196 state seats. The opposition coalition has also won the majority State seats to rule the states of Kedah, Penang, Perak, Selangor and Kelantan (Lim & Har, 2008). This so-called “Political Tsunami” has remarkably hit the market and caused a plunge of 9.5% on the KLCI on the first trading day after the election. Soon after the election, the Abdullah officially announced his intention to resign on 8 October. He then officially tendered his resignation letter on the 2 April 2009 and was succeeded by Najib Razak as the 6th Prime Minister of Malaysia on 3 April. One year after Najib came into power, he reshuffled his cabinet on 1 June 2010 in aiming to stabilize his coalition and boost support from the minority ethnic. Ong Tee Kiat, the former MCA President, was dropped from the cabinet with Chor Chee Heung being promoted to Housing and Local Government Minister.2 The reshuffle also involved the appointment of Khong Cho Ha as the Transport Minister and six other deputy ministers. The new appointment was seen by many as the settlement of MCA tussle for power for the past 18 months. 2The Star, 2 June 2010 43 On July 9, 2011, a big scale rally was organized by BERSIH 2.0 to push for a thorough reform of the electoral process in Malaysia.